Normalize RSI with Bollinger Bands to Reflect Volatility

Summary

This indicator transforms the Relative Strength Index by placing it within a Bollinger-style band calculated from the RSI itself. It first computes RSI from closing prices, then calculates an exponential moving average of that RSI and bands two standard deviations above and below the average. The normalized value expresses the RSI’s position within the resulting band, connecting the oscillator’s reading to its recent variability.

The description attributes the concept to a Bollinger Bands book and provides an implementation sketch, including a default RSI period of 14. It does not specify the averaging period used for the bands, explain how to interpret values outside the band, or define entry and exit rules. No historical tests or performance evidence are given, so the normalization should be treated as an indicator construction rather than a demonstrated trading strategy.

Key ideas

• The indicator applies Bollinger-style bands to RSI values rather than directly to price.
• It centers the bands on an exponential average of RSI and sets their width using two standard deviations.
• The normalized output measures RSI’s location within the upper and lower bands.
• The description gives no trading rules or backtest evidence.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.